CEE MARKETS-FX retreat on euro strength, Poland seen holding rates

7 Min Read

* Currencies give up some ground on hawkish ECB signal
* Polish cbank seen holding rates, reaffirming loose policy
* Crown sets 3-week high before retreat on rate hike
expectations
By Sandor Peto
BUDAPEST, June 6 (Reuters) - The zloty led a retreat of
Central European currencies as the Polish central bank is
expected to reaffirm its loose policy stance on Wednesday, while
the European Central Bank gave hawkish signals.
The euro jumped to a 10-day high against the dollar
after ECB officials said an end to the bank's bond buying
programme was plausible.
A rally of the dollar, backed by a rise in U.S. interest
rates, caused a sell-off in emerging markets last month,
knocking assets in the European Union's eastern wing to
multi-month or multi-year lows.
The dollar's retreat on Wednesday did not help the region's
currencies because less monetary stimulus and the prospect of
higher rates in the euro zone make them relatively less
attractive.
Regional currencies have regained some ground this week as
dollar bulls lost momentum and worries over political
uncertainty in Italy and Spain abated, but retreated on
Wednesday.
The zloty eased 0.1 percent against the euro to
4.282 by 0823 GMT and the forint also eased slightly.
Central bankers in both Poland and Hungary have signalled
that interest rates could stay on hold at record lows for years
and the Polish central bank is expected to repeat that after its
meeting on Wednesday, analysts said.
UniCredit analysts said in a note that the bank could send
"dovish signals after inflation rebounded less than expected".
They said the bank's forecasts may show higher inflation for
the next 12 months due to a rise in crude prices and a weakened
zloty.
The bank's current forecast for inflation to peak at 3
percent in 2020, in line with core inflation, may be too
optimistic, UniCredit said.
"Rate hikes remain on the cards in the fourth quarter of
2019 if core inflation threatens to break out of the target
range in the coming years," the analysts added.
Poland's 10-year government bond yield rose 2 basis points
to 2.23 percent, in line with their closely-watched U.S. peer.
The Czech crown also retreated from a 3-week high
touched in early trade, but remained a touch firmer from
Tuesday, trading at 25.642 against the euro.
The currency has been lifted by comments from Czech central
bank Governor Jiri Rusnok who said on Tuesday that the bank may
raise interest rates sooner than expected due to faster wage
growth and a weaker-than-expected crown.
Czech markets have priced in a rate hike for October, but
the bank may increase its interest rates already at its August
meeting where it is due to present its quarterly forecasts, a
note from Komercni Banka traders said.
CEE SNAPSHOT AT
MARKETS 1023 CET
CURRENCI
ES
Latest Previous Daily Change
bid close change in 2018
Czech 25.6420 25.6515 +0.04% -0.39%
crown
Hungary 318.8300 318.6850 -0.05% -2.48%
forint
Polish 4.2820 4.2783 -0.09% -2.47%
zloty
Romanian 4.6520 4.6520 +0.00% +0.60%
leu
Croatian 7.3880 7.3835 -0.06% +0.57%
kuna
Serbian 117.9400 118.0400 +0.08% +0.47%
dinar
Note: calculated from 1800 CET
daily
change
Latest Previous Daily Change
close change in 2018
Prague 1071.76 1073.240 -0.14% -0.59%
0
Budapest 36785.43 36677.56 +0.29% -6.58%
Warsaw 2261.11 2255.95 +0.23% -8.13%
Bucharest 8270.85 8250.17 +0.25% +6.67%
Ljubljana 903.65 901.07 +0.29% +12.06%
Zagreb 1832.81 1842.85 -0.54% -0.55%
Belgrade <.BELEX15 744.78 746.20 -0.19% -1.98%
>
Sofia 635.64 633.77 +0.30% -6.17%
BONDS
Yield Yield Spread Daily
(bid) change vs Bund change
in
Czech spread
Republic
2-year <CZ2YT=RR 1.0100 0.1250 +165bps +11bps
>
5-year <CZ5YT=RR 1.4780 0.0670 +167bps +1bps
>
10-year <CZ10YT=R 2.0290 0.0470 +161bps -1bps
R>
Poland
2-year <PL2YT=RR 1.5860 0.0030 +223bps -2bps
>
5-year <PL5YT=RR 2.4180 0.0050 +261bps -6bps
>
10-year <PL10YT=R 3.2260 0.0070 +280bps -5bps
R>
FORWARD RATE AGREEMEN
T
3x6 6x9 9x12 3M
interban
k
Czech Rep < 1.13 1.27 1.39 0.00
PRIBOR=>
Hungary < 0.07 0.10 0.18 0.12
BUBOR=>
Poland < 1.76 1.75 1.81 1.70
WIBOR=>
Note: FRA are for ask prices
quotes
**************************************************
************
(Additional reporting by Jason Hovet in Prague and Agnieszka
Bartezcko in Warsaw
Editing by Alexandra Hudson)